Most small business owners do not need formal training or education to learn how to start and run a business. They have their ways of learning the skills and acquiring knowledge from theirvaried experience and exposure coupled with the business acumen ingrained in them. Some, of course, have business school backgrounds. Still, everyone knows that the budget is the starting point of any business plan, and every business owner must have some knowledge about the financial aspects that help run the show. According to Vic Di Criscio, budgeting is a critical exercise as it defines the parameters that help set the revenue targets for achieving a healthy bottom line.
Budgeting consists of matching expenses with revenue, both earned and expected,for understanding if there would be an adequate flow of money to keep the business afloat, earn a profit, and plan for expansion or growth. In the absence of a budget, the business would drift like a rudderless boat, which could finally result in more outflow of money that dents profit or throttles spending that hampers growth.
Follow the steps discussed below to create a workablebusiness budget.
Maintain the industry standards, suggests Vic Di Criscio
Although businesses are of different kinds, there are some commonalities too. It has created some industry standards that you can use as a benchmark for developing your business budget. You can gather huge information about creating a budget by browsing the internet and even talk to some local business owners, visit the local library or refer to the IRS website to learn about the revenue that would be necessary for allocation to cost groups. Follow the industry average instead of looking for specific figures so that it can help to cover any unexpected downturn that the business might go through.
Tabulate it on a spreadsheet
Use a spreadsheet to tabulate the figures when allocating costs based on the available funds by working out the percentage of allocation under various variable cost heads, including everything from raw materials to other costs. The same method is applicable for distributing overhead costs like the fixed expenses of rents, taxes, insurance, etc. Knowing the processes of creating a budget for a business should help to make the budget methodically.
Keep some margins
Budget is all about anticipating expenses and, therefore, subject to change. From the expected revenue to the idea of controlling certain costs, everything might change with time. The budget must have some in-built flexibility to accommodate the changes on an ongoing basis. You must provide some margins so that there are adequate financial reserves or generate additionalrevenue earning, which could help meet the growth and expansion plans.
Cost-saving to be in focus
Cost-saving is a critical aspect of budgeting as it helps to enhance revenue during challenging times by generating added revenue streams. It should help to meet some immediate liabilities of bill payments or seize some unforeseen business opportunities. Target some big-ticket items that can generate considerable cost savings.
Monitor the budget continuously and fine-tune it according to the groundreality.